Practice Set (Questions) - IFRIC 14

IFRIC 14 – Practice Set [Questions]
PRACTICE QUESTIONS
Question 1
ABC Limited operates a funded defined benefit plan for its employees. The plan provides a pension of 1% of the
final salary for each year of service. The cost for the year is determined using the projected unit credit method.
This reflects service rendered to the dates of valuation of the plan and incorporates actuarial assumptions
primarily regarding discount rates, which are based on the market yields of high quality corporate bonds.
Following information is available in respect of the benefit plan:
2020 2019 2018
------------ Rs. million ------------
Fair value of plan assets 1,970 1,700 1,500
PV of defined benefit obligation 1,766 1,510 1,300
PV of economic benefits available (Asset ceiling) 220 180 170
Current service cost 280 250 210
Contributions 160 120 100
Benefits paid 190 150 140
Discount rate 10% 10% 10%
Required:
Prepare extracts of SOFP and SOCI for the year 2020 (also show comparative figures for 2019).
Question 2
XYZ Limited operates a funded defined benefit plan for its employees. As per the terms and conditions of the
plan, any surplus in plan can be refunded only after following deductions:
 5% for professional costs.
 3% local govt. tax
 10% income tax
The present value of defined benefit plan and fair value of plan assets as determined at June 30, 2020 were Rs.
1,500 million and Rs. 1,700 million respectively.
Required:
Determine the amount of net defined liability/asset to be included in statement of financial position as at June
30, 2020.
Question 3
MNO Limited has a defined benefit plan. The MFR requires it to pay contributions to cover the future service
cost. The future service cost and related MFR contribution required as follows:
Future service MFR

cost contribution
Year ---------- Rs. million -----------
2021 15 17
2022 15 15
2023 15 12
2024 onwards 15 11
(till perpetuity)
1,520 million and Rs. 1,600 million (including prepayment of Rs. 20 million in respect of above MFR contributions)
Nasir Abbas FCA 5.2.1

respectively. Any surplus in plan cannot be refunded to the entity under any circumstances but can be used for
reductions of future contributions.
Appropriate discount rate is 7%.
Required:
Determine the amount of net defined liability/asset to be included in statement of financial position as at June
30, 2020.
Question 4
AB Limited has a funding level on the MFR basis of 80% in a benefit plan. Under the MFR, it is required to increase
the funding level to 95% immediately. As a result, it has an obligation to contribute Rs. 50 million to the plan to
cover shortfall in respect of past service. The plan rules permit a full refund of any surplus to the entity at the
end of the life of the plan.
Required:
Discussing the effect of MFR contribution required, determine the amount of net defined liability/asset to be
included in statement of financial position as at June 30, 2020.
Question 5
XY Limited has a funding level on the MFR basis of 75% in a benefit plan. Under the MFR, it is required to increase
the funding level to 100% immediately. As a result, it has an obligation to contribute Rs. 300 million to the plan
to cover shortfall in respect of past service. The plan rules permit a maximum refund of 70% of any surplus to
the entity at the end of the life of the plan.
Required:
Question 6
MNO Limited has a funding level on the MFR basis of 77% in a benefit plan. Under the MFR, it is required to
increase the funding level to 100% immediately. As a result, it has an obligation to contribute Rs. 300 million to
the plan to cover shortfall in respect of past service. The plan rules permit a maximum refund of 60% of any
surplus to the entity at the end of the life of the plan.
Required:

Question 7
PQR Limited has a funding level on the MFR basis of 95% in a benefit plan. Under the MFR, it is required to
increase the funding level to 100% over the next 3 years. The contributions are required to cover past service as
well as future service. The plan rules do not permit any refund of any surplus to the entity at the end of the life
of the plan however can be used for reductions of future contributions.
On June 30, 2020:
- The present value of MFR contributions required for past service is approximately Rs. 300 million.
- The present value of economic benefits available as a future contribution reduction (i.e. future service cost
net of MFR contributions required) is approximately Rs. 80 million.
- The present value of defined benefit plan is Rs. 1,200 million
- Fair value of plan assets is Rs. 1,300 million.
Required:

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IFRIC 14 – Practice Set [Questions]

Future service MFR

Nasir Abbas FCA 5.2.1

Nasir Abbas FCA 5.2.2

Nasir Abbas FCA 5.2.3

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